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  • Agriculture Loan

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  • Agricultural loans are any loans that are availed by a farmer to fund seasonal agricultural operations or related activities like animal farming, pisci-culture or purchase of land or agricultural tools. While seasonal agricultural operations routine activities like include preparing and ploughing land for sowing, weeding, and transplantation where necessary, buying inputs such as fertilizers, seeds, insecticides etc. and engaging labour for cultivating and harvesting the crops.

    In addition purchasing of land, or purchasing of agricultural tools, storage of produce and transport also are included under purview of agricultural loans.

    The agricultural policy of the Government of India also envisages substantial credit flow to increase agricultural production and productivity. Banks provide agricultural term loans to farmers for investment purposes and Short Term Loans for production purposes. There is a need to finance farmers for purchasing land not only to expand their activities but also to make existing small and marginal units economically viable, diversify their present activities and to bring fallow lands and waste lands under cultivation.

    In India, agriculture has been marked as priority sector because farmers constitute a large part of the population. As such agriculture sector qualifies for priority sector lending at lower interest rates by banks. In India, most of the commercial banks, co-op societies and rural banks provide agricultural loans to farmers.

    Agricultural Loan Interest Rate 

    The interest rates charged for agricultural loans can vary significantly based on the type of loan scheme that is opted for and your choice of lender. That said, the interest rates for agriculture loans start at about 8.80% p.a. In addition to the interest rate, agriculture loan borrowers will also have to pay a one-time processing fee which can range from nil to up to 2% of the loan amount, if not more.  

    How to Calculate EMI for Agricultural Loans 

    Before you borrow an agriculture loan, it is necessary to calculate the payable EMI. You can do this using on an online EMI calculator by entering certain details such as your loan amount, loan tenure, interest rate, and processing fee. Once you key in these details into the calculator, the monthly EMI that you will need to pay will be displayed. You may also be able to view the amortisation details/loan repayment schedule.  

    How to Apply for an Agriculture Loan  

    If you are looking to apply for an agriculture loan, it is advisable to research your options online and apply for a loan of your choice by visiting the nearest branch of a lender. When visiting the branch, ensure that you carry the required documentation along with you to quicken the application process. 

    Certain lenders may also give prospective borrowers the option to apply for an agriculture loan online through their official websites. In this case, you will need to navigate to the respective website, click on ‘Apply Now’, enter the required details in the application form, and upload the necessary documents onto the website.  

    Regardless of the channel that you choose, the lender will verify your application and approve it. Once your application gets approved, the loan amount will be disbursed into your account.  

    Why Should You Take an Agriculture Loan  

    A number of lenders today, offer a range of agriculture loans for the benefit of their customers. The various purposes for which you can avail an agriculture loan are as follows:  

    • Purchase of farming machinery and equipment  
    • Purchase of land  
    • Horticulture projects  
    • Purchase of vehicles  
    • Establishment of dairy units  
    • Establishment of small poultry units  
    • For working capital needs  
    • For seasonal requirements  
    • For fish farming  

    Features and Benefits of Agriculture Loans 

    The key features and benefits of agriculture loans are as follows:  

    • Simplified Documentation: When borrowing an agriculture loan, applicants will only have to submit a few documents such as a valid photo identity proof, proof of residence, etc. These documents can be submitted along with one’s application form.  
    • Quick Processing: Lenders will verify your application form and the documents submitted by you, after which your loan application will be approved. The loan amount will be disbursed to your account soon after this.  
    • Competitive Interest Rate Charged: Banks and financial institutions that offer agriculture loans charge a competitive rate of interest that start as low as 8.80% p.a. Borrowing a loan with such a low interest rate can help you keep the overall cost of your loan down.  
    • Loan Repayment Tenure Options: A number of agriculture loan providers offer both short-term and long-term credit solutions. Thus, based on your financial requirements and repayment capacity, you can opt for a loan product that offers a suitable product term.  
    • No Hidden Charges: When you borrow an agriculture loan, you may need to pay other charges such as the processing fee, pre-payment charges, etc. However, lenders will usually inform prospective borrowers about the various charges that they may have to pay for before the loan is borrowed.  

    Documents Required for Agriculture Loans  

    The documents that you may be asked to submit at the time of applying for an agriculture loan are as follows:  

    • Duly-filled application form  
    • KYC documents  
    • Land/asset documents  
    • Any other document mandated by the lender  

    Eligibility Criteria to Borrow an Agriculture Loan  

    The eligibility criteria to borrow an agriculture loan will vary based on the type of loan scheme that you opt for. The generalised eligibility criteria, however, are as follows:  

    • The applicant will have to be between the ages of 18 years and 70 years.  
    • The individuals will have to own the necessary assets, which will need to be hypothecated to the bank once the loan is borrowed.  
    • Loans can be applied on an individual basis or joint basis, based on the lender’s terms and conditions.  

    Highlights of the Union Budget 2018-19 in Terms of Agriculture

    • The Union Budget aimed to help farmers generate higher incomes from the same land parcel by obtaining a minimum of 50% more than their initial investment on crops.
    • In case the cost of the produce market becomes less than the Minimum Support Price (MSP), the Government is liable to purchase the agricultural produce at MSP or help farmers receive MSP with the help of Niti Aayog.
    • The Government will establish a committee that will not only impose relevant policies and practices applicable to the price and demand, but will also take decisions pertaining to the imports and exports within the country.
    • The Finance Minister also stated that 22,000 rural haats will be upgraded to Gramin Agricultural Markets (GrAMs) allowing farmers to sell directly to the customers or purchase goods in bulk.
    • An Agri-Market Infrastructure Fund of Rs.2,000 crore will be allocated for the development of the GrAMs and Agricultural Produce Market Committees (APMC).
    • The Prime Minister Gram Sadak Yojana Phase III will be put in place to provide all-weather roads to areas that are still uncovered.
    • The Government will further promote cluster-based development of agri-commodities to alter the entire chain of production and marketing.
    • The Union Budget also emphasised in the development of small and cottage industries by allocating Rs.200 crore to this end.
    • The allocation for the Ministry of Food Processing is doubled from the previous financial year to amount to Rs.1,400 crore.
    • The Government will also allocate a corpus of Rs.500 crore towards agri-logistics, Farmer Producers Organizations (FPOs), and processing facilities.
    • To offer more benefits to small and marginal farmers, animal husbandry farmers and fisheries will be offered Kisan Credit Cards.
    • The Government also intends to promote the bamboo sector by allocation a sum of Rs.1,290 crore.
    • The 2018-19 Union Budget emphasised on the adoption of solar-powered systems for agricultural purposes. To this end, the Government will not only encourage distribution companies to purchase the additional power generated by the farmers, but will also expand the scope of Long Term Irrigation Fund (LTIF).
    • For the infrastructural development of the fisheries and animal husbandry sector, the Government will allocate a total corpus of Rs.10,000 crore.
    • The meeting also witnessed a rise in the institutional credit for the agriculture sector which is proposed to be Rs.11 lakh.

    Agriculture Loan FAQs

    1. Can loan be availed for purchase of land  

    Yes, banks do extend loans to farmers for purchasing lands. However, banks usually finance purchase of land within a radius of 3 to 5 Kms of their residence or within village boundary.

      2. Can I pre-close my agriculture loan before the completion of the loan tenure

    Most lenders will allow you to prepay the outstanding loan balance and pre-close the loan amount before the completion of the loan tenure. However, you may need to pay a pre-closure penalty to the lender.

         3. What are the different stages involved in the process of availing an agriculture loan

    The key stages involved in the process of availing an agriculture loan are as follows:

    Submission of application form and relevant documents  Lender processes the application  Loan amount is sanctioned  Loan amount gets disbursed into the customer’s savings account

    4. How long do lenders take to process agriculture loan applications  

    The time required to process your application will vary based on the lender’s terms and conditions. That said, most lenders take around 7 days to process loan applications.

    5. Will I need a guarantor to avail an agriculture loan

    Yes, most lenders will require you to have a guarantor.  

    6. Can loan be availed for purchase of land

    Yes, banks do extend loans to farmers for purchasing lands. However, banks usually finance purchase of land within a radius of 3 to 5 Kms of their residence or within village boundary.

    7. Who can apply for such land purchase

    Farmers who own less than 2.5 acres of irrigated land or 5 acres of non-irrigated land, i.e-marginal and small farmers-are eligible to buy land by availing a bank loan. Sharecroppers and tenant farmers can also be covered under the scheme.

    8. Can loans be availed for purchasing land in the name of women

    Yes, it is possible. As per Govt policy women owning land could lead to their empowerment. Hence, purchase of land in women can be financed and preference can be given to women in distress, SHG members and widows etc.

    9. What are the other allied activities eligible for agricultural loan

    In addition purchasing of land, or purchasing of agricultural tools, storage of produce and transport also are included under purview of agricultural loans.

    10. How much agricultural loan can be availed without any security

    To encourage institutional borrowing among farmers, banks have relaxed security or collateral for agricultural loans.

    As per RBI directive, crop loans till an amount of Rs. 1 lakh require no security. Loans over Rs. 1 lakh may require security as per the lending banks terms and conditions.

    Similarly, there is no margin for loans for purchase of land up to Rs 50,000 and amounts higher than this require a margin of 10%. The land is supposed to mortgaged in favour of the Bank and is considered the security.

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